Amidst board room tumult, Buffalo Wild Wings Inc. (NASDAQ:BWLD) announced in the last days of March that Janice Fields and Sam B. Rovit have been slated to join its nine-panel board of directors, subject to confirmation at the upcoming company's annual meeting of shareholders, traditionally held in May.

The company said that Rovit was originally nominated by hedge fund firm Marcato Capital Management LP, one of Buffalo Wild Wings' shareholders.

Fields was formerly with McDonald's USA and Rovit is with CTI Foods. The two are slated to join the board as James Damian and Michael Johnson retire.

"We are pleased to nominate Jan Fields and Sam Rovit for election to serve as new independent directors to the Buffalo Wild Wings Board," said Jerry Rose, chairman of the board of Buffalo Wild Wings. "Jan and Sam are both distinguished and highly respected executives with deep restaurant and food services experience, and we look forward to benefitting from their expertise as we continue to execute on our strategic initiatives to drive growth and create value for all of our shareholders."

Buffalo Wild Wings elaborated that Fields led McDonald's USA operations from 2006 to 2012. She was involved in the rollout of the McCafe beverage menu and serves on the boards of Monsanto and Chico's FAS Inc.

Summary:

Buffalo Wild Wings listens to activist and appoints another two new board members, one being the activist's own suggestion.

Activist complains the changes are not enough. It sees big short-term gain in refranchising 90 percent, while current board wants to sell only 10 percent of company-owned stores to franchises.

An analyst says this is still a good opportunity for franchisees to have more say and explains how.

The other nominated director, Rovit, is the chief executive officer and president of CTI Foods, a provider of custom food solutions to major chain restaurants and food manufacturers. Before that he worked at Kraft Foods, where he was responsible for managing the Oscar Mayer and Claussen Pickles brands. Rovit served as partner and director at Bain & Company Inc., where he led the firm's global mergers & acquisitions practice from 2000-2005.

Representing more than 1,220 restaurants around the world, Buffalo Wild Wings has made its second announcement in six months of a major change to its board of directors. In October the board changed three of its directors.

After the restaurant chain's announcement, activist hedge fund firm Marcato, which has been seeking four board seats, not one, wants major changes in the direction of Buffalo Wild Wings.

"Buffalo Wild Wings' desperate actions only confirm that there is substantial deficiency at the board level and lack of a cohesive plan to create long-term shareholder value," declared Marcato in a press release that vented the activist's frustration. "It is deeply troubling that the company would take these steps without consulting us or other major shareholders, as we have continuously endeavored to engage in constructive dialogue with the board and management on the strategic, operational and financial issues that we believe are plaguing the company. Unfortunately, every attempt we've made has been stymied."

Marcato sees the changes by Buffalo Wild Wings as too little and top down. The activist release continued, "In our view these changes do not go far enough and the company's rejection of our proposal to adopt a universal proxy ballot is clearly designed to thwart shareholder democracy. Rather than scrambling to protect the status quo, Buffalo Wild Wings should address our proposed operational improvements and business model modifications, which we believe are the only ways to drive sustainable value for all shareholders."

John Gordon, principal of San Diego-based Pacific Management Consulting Group, has advocated that franchisees can use opportunities like this to obtain a seat on their franchisor's board of directors. That would give them a seat at the table where decisions on the strategic direction of the franchisor and its franchises are made.

But it didn't happen this time.

"Buffalo Wild Wings could have announced a franchisee association board member, but they didn't," said John Gordon, principal of San Diego-based Pacific Management Consulting Group.

Buffalo retains Cypress to help it refranchise

Buffalo Wild Wings also spiced things up by announcing that it has retained The Cypress Group to help with its refranchising plans to sell roughly 10 percent of Buffalo Wild Wings company-owned restaurants to franchisees. The irony of that was Cypress was the firm Marcato had retained and had quoted back in October to help them in their goal of selling 90 percent of the company-owned stores to franchisees. Cypress estimated that 90 percent of the company stores could be sold off within 18 to 24 months to reward the company and shareholders.

Sally Smith, president and chief executive officer of Buffalo Wild Wings, said, "We are excited to partner with The Cypress Group, which has a notable breadth of franchise deal experience and an extensive network of valuable relationships. We anticipate engaging with successful, committed franchisees with the desire, experience and financial ability to build our brand and further strengthen the Buffalo Wild Wings system."

Marcato was upset that BWW was using the activist's own retained refranchising expert to sell off only 10 percent of the company-owned stores. "It is ironic that, despite spending the last nine months resisting all of Marcato's suggestions for financial and operational improvements, Buffalo Wild Wings has now chosen to engage the Cypress Group on its so-called 'portfolio optimization' process. Notably, Marcato retained the Cypress Group last year to study the feasibility of refranchising at Buffalo Wild Wings."

Cypress is an investment banking firm that specializes in refranchising efforts. It has helped major restaurant chains, such as Wendy's and TGI Fridays, in their refranchising efforts.

"We strongly believe that a shift to a highly franchised business model is not only feasible, but also creates substantial value for Buffalo Wild Wings shareholders over the long term," stated Marcato in a press release. "Even with the Cypress Group's support of the feasibility of Marcato's refranchising proposal, we remain concerned that Buffalo Wild Wings will continue to resist this plan."

What franchisees could do more in order to have a seat at the table

Franchise Business Services, an independent franchisee association of almost all of Buffalo Wild Wings' franchise owners, has backed the current management. That should win the association some brownie points. But restaurant analyst Gordon thinks that franchisees could further use the threats to their franchisor's board of directors to push for a seat there for the association itself. The analyst states that association leaders should not just hunker down now and do nothing about a hedge fund trying to squeeze its way into running the franchise chain. "Franchise Business Services has already stuck its neck out publicly to support the management team, so they should continue to actively participate with the franchisor over this issue with shareholders."

"Franchisees need to be at the table, or they'll be served on the table."

The consultant's advice echoes the fundamentals of strategic thinking. It could easily be pulled from the playbook of the ancient Chinese sage Sun Tzu and his book, The Art of War. Applied to franchisees, they first and foremost need to use strategy to engage the entire system—from shareholders to employees, from institutions to government—to bend the whole to their ownership needs, not just having a franchisee advisory council or independent association provide advice to the ears of the franchising company's management team. "Those who are skilled in executing a strategy, bend the strategy of others without conflict," declared Sun Tzu some 2,500 years ago of the ultimate way to engage and change a system to one's benefit, and thus avoid war down the road. Or, in the modern words of a leader of another huge independent franchisee association affiliated with the hotel industry: "Franchisees need to be at the table, or they'll be served on the table."

Franchisees could engage the system by the leaders of their association publicly commenting further on why they would consider Marcato's desire to refranchise 90 percent of the company stores bad for the brand. Gordon suggests that the association could publish a white paper on it, similar to how Marcato issued a presentation on why they thought selling most of Buffalo Wild Wing's company-owned stores was good for the company.

"In that way, franchisees would further express their voice to shareholders," said Gordon.

The restaurant analyst encourages the leaders of the independent association to be publicly helpful to the CEO. Not only is the association representative of almost all franchisees, but they are independently led. Shareholders would understand that a CEO can pick a franchisee to mimic back what the CEO wants shareholders to hear—or else. But an independent association, which should emphasize its autonomy, has clout.

"Another thing is that senior franchisee association members could accompany Buffalo Wild Wings' CEO Sally Smith to go talk with investors," said Gordon. "That highlights to the large investors and others the important role of franchisees and conveys their opinion on other issues that will roll forward in the future," says Gordon."

Gordon also encourages the franchisee association to have its members help Franchise Business Services buy shares in Buffalo Wild Wings. "That empowers franchisees at the shareholder meeting and it gives their association some vote, even though it is tiny compared to the other institutional holders," says Gordon.